Articles

    A Baker’s Dozen for the Bottom Line: 13 Financial Hacks to Save Time, Money and Hassle

    People are constantly looking for “hacks”: ways to improve their lives, to do more with less, to find new ways to gain and maintain an edge. It’s called progress, and it’s something human beings seemingly are wired to want and to seek.

    That’s especially true in the context of our financial lives. People are always seeking ways to improve their financial standing, now and in the future. The 13 financial hacks listed below include bypasses, shortcuts and other straightforward money-related maneuvers that can make a lasting positive impact on the financial bottom line, while saving time and hassle in the process.

    HACK #1: Use a tax-favored 529 plan to pay for private high school, or even private elementary or middle school. As a result of newly instituted federal tax policy, tax-favored 529 educational savings plans aren’t just for college anymore.In addition to covering college expenses, beginning in 2018, money from 529 plans can be used to pay for up to $10,000 of tuition expenses per year, per student, for enrollment at an elementary or high school, notes Marguerita M. Cheng, CFP® of Blue Ocean Global Wealth in Gaithersburg, MD.

    HACK #2: Use a tuition payment plan to help pay for a college education. As fast as the cost of a college education is escalating — four years at an out-of-state public college now cost an average of about $102,000 — many institutions offer students and their families interest-free payment plans to relieve some of the financial pressure. To find out if an institution offers such a plan, and if so, what the terms and enrollment cost are, contact the school’s financial aid office.

    HACK #3: If you like to travel, get creative to manage your travel costs. Here’s a four-in-one financial hack to make travelling less expensive.

    •          Find ways to accumulate travel points or airline miles. There are ways to strategically and responsibly use a credit card to gain miles or points that defray the cost of air travel, lodging, rental cars and more. The important point here is to be sure to pay down card balances promptly. Otherwise the perks you stand to gain from using miles/points will be offset by higher interest charges on the credit card balances you’re carrying. Websites such as www.bankrate.com and www.nerdwallet.com offer comparisons and ratings of credit card rewards programs. They can also help you evaluate cards based not only on rewards but on the interest rate charged on purchases.
    •          When you rent a car, instead of paying the extra cost for insurance once you reach the counter, take advantage of the insurance protection that’s built into many credit cards. Before renting a car, first confirm that your credit card offers insurance on car rentals, then find out details on the extent of that coverage. If the card you use to rent a car does come with adequate coverage, then consider declining the extra coverage offered by the rental car company.
    •          Clear the cache of your Internet browser — Google Chrome, Firefox, Safari, etc. — when you’re shopping travel websites for a hotel, rental car or airfare. These sites have the ability to sift through the Internet search history stored in your browser’s cache, then adjust their prices higher, knowing you’re looking to make reservations for a certain destination on certain dates. They can’t do that, however, if your cache is empty. If you don’t know how to empty the cache associated with your browser, ask someone who’s tech savvy to show you how.
    •          If you have a specific place you want to visit, or you just want to travel someplace interesting and you’re willing to offer your home in trade to someone who’s interested in traveling to where you live, then consider arranging a home swap through a house-exchange website. Instead of paying for a hotel or a rental property, you stay in someone else’s home while they’re not there. In exchange, they get to use your home while you’re not there. Sometimes, the exchange involves a car, too. The only cost the participants pay is the fee charged by the website brokering the exchange, typically $100 to $150 annually. If you’re intrigued by the concept, check out sites such as www.HomeExchange.com and www.HomeLink.org.

     

    HACK #4: Take video of the contents of your home for insurance purposes. Leon C. LaBrecque, CFP® head of LJPR Financial Advisors in Troy, MI, urges homeowners to keep an up-to-date photo or video inventory depicting the contents of their home as a way to accurately document and value the things they own, a necessity for homeowner’s (or renter’s) insurance. Keep images of every room in your home, plus the contents of closets, drawers, etc., along with details on when you bought specific items and how much you paid for them. Also keep images of electronic equipment (computers, televisions, stereo equipment, etc.) and their serial numbers. And be sure to time-date all the images by putting a dated item in the picture — a magazine cover with the issue date clearly visible, for example. Don’t rely only on the date stamp that the photo/video app embeds on the pictures.

    HACK #5: Pay bills automatically via your bank’s online bill-pay service. This saves time, money (postage) and potential aggravation from a missed payment. “As a student of behavioral economics, I like anything that reduces our reliance on, or eliminates, our biases,” says LaBrecque.

    HACK #6:  Use the automatic rebalance feature in your 401(k). This is a mechanism that periodically checks how assets in a 401(k) account are allocated, then adjusts that allocation if necessary, based on allocation parameters established by the account owner. Maintaining an appropriate allocation of assets is key to positioning assets for long-term growth.

    HACK #7: Use the automatic increase feature in your workplace retirement plan and college savings plan. Most plans allow you to activate a mechanism that increases contributions by a specified percentage each year, on a specified date. “This will automatically help you save more for retirement in a way that is not at all painful,” says Kristin C. Sullivan, CFP® of Sullivan Financial Planning in Denver, CO.

    HACK #8: Take advantage of the tax-favored catch-up provisions that Uncle Sam offers retirement savers.The IRS allows people age 50 and over to contribute an additional amount each year — as much as an extra $6,000 in some cases — to a qualified retirement plan [401(k), IRA, etc.] as a way to accelerate their retirement savings.

    HACK #9:  If possible, delay taking Social Security benefits. A person can opt to start drawing Social Security income as early as age 62. Another option is to wait until what the Social Security program calls “full retirement age” (the age at which a person becomes entitled to full or unreduced retirement benefits, usually 66 or 67), or even until age 70. Delaying allows a person to earn valuable “delayed retirement credits” that increase their monthly benefit when they do start taking payments. Those credits are equal to an annual 8% raise in benefits. All it takes is a glance at the numbers to understand the rationale for waiting. For example, a person who would get a benefit of $1,000 a month at age 62 would get at least $1,333 at age 66 and $1,760 at age 70, according to calculations by the Center for Retirement Research at Boston College.

    HACK #10: Turn money in your 401(k) into a guaranteed retirement income stream. An increasing number of 401(k) retirement plan providers offer participants the option to convert a chunk of in-plan assets into a steady, annuity-like stream of income for retirement. This can be a viable option for people seeking an additional source of guaranteed income for a period of time, or for a lifetime, to supplement Social Security and other income streams.

    HACK #11: Consider purchasing a life insurance policy that also covers the cost of long-term care or a critical/chronic illness. There are lots of reasons to like life insurance, for its ability to protect people financially and to transfer wealth tax-efficiently. Another potentially appealing aspect of certain types of permanent life insurance (whole life, universal life) are so-called “living benefits,” an optional feature that, for an extra cost, provides the policy owner with funds to help cover the cost of a long-term care need or the costs associated with a critical or chronic illness.

    HACK #12: Use lower-cost investments. Led by the King of Investors himself, Warren Buffett, more investors are shifting money into index funds and exchange-traded funds (ETFs) because they generally charge lower fees to investors than do actively managed mutual funds, without sacrificing performance. Actively managed funds incur costs for research and trading in the name of outperforming the market, costs they pass on to investors. Passively managed funds like index funds don’t have these costs, mostly because they’re designed to track the market, not outperform it. Lower fees and costs allow a person to hold onto a larger share of the gains from their investments — gains that may compound upon themselves over time. And research by the fund company Vanguard suggests that passive investments may actually perform better than actively managed funds over time. Vanguard compared the 10-year records of the 25% of funds with the lowest expense ratios and the 25% with the highest expense ratios. The low-cost funds outperformed the high-cost funds in every single category.

    For every actively managed mutual fund you own, there’s likely an index fund or ETF with a similar investment profile that you could use instead, whether as a stand-alone investment or inside a retirement account [401(k), IRA, etc.).

    HACK #13: Contribute to a health savings account (HSA). People who have a high-deductible health plan likely also have access to an HSA. Not only can an HSA provide a convenient way to pay for health care expenses, it also can serve as a powerful savings and investment tool. From a tax perspective, HSAs are a win-win-win: HSA contributions are tax-deductible; money saved in an HSA can grow tax-deferred; and, account holders are able to withdraw HSA funds tax-free to cover qualified medical/healthcare costs.

    What’s more, many HSA providers now allow account owners to keep some of their HSA money in  mutual funds, so instead of earning nothing or next to nothing in interest, that money has greater upside to grow (and greater downside risk, since it is invested in the stock market rather than in a fixed-interest account). The fact that money in an HSA can remain in the account from one year to the next makes that investment option extra appealing to some people. The HSA ultimately functions like an IRA for healthcare and medical costs.

    March 2018 — This column is provided by the Financial Planning Association® (FPA®) of Iowa, the principle professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  Please credit FPA of Iowa if you use this column in whole or in part.

    The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

     

    Financial Planner or CERTIFIED FINANCIAL PLANNER™? One Word Can Make a World of Difference

    Martha and Matt have goals. They want to find the time and the money to travel with their kids. They want to better manage their household finances. They want to help pay for their kids to attend college. They want to save enough now to eventually live comfortably in retirement. And they want a financial professional to help them develop a plan that puts them on track to meet their goals.

    The couple has narrowed their search to two financial professionals, one who is a CERTIFIED FINANCIAL PLANNER™ professional, or CFP®, and the other who calls himself a “financial planner” but who has not earned the CFP® designation. Both candidates seem experienced and well qualified. Now Martha and Matt are wondering if there are distinctions between the CFP® designation and the generic “financial planner” label, and if so, whether those distinctions matter.

    “A lot of people don’t understand there are differences between the two,” says Sallie Mullins Thompson, a CFP® professional who practices in New York City. Yet people like Martha and Matt should be aware of these distinctions, because they can impact the direction of a person’s financial life, their ability to attain their goals, and their overall experience working with a financial professional.

    “Anyone can call themselves a financial planner,” notes Richard K. Colarossi, CFP®, of Colarossi & Williams Financial Advisory Group in Islandia, NY. That includes professionals who exclusively sell insurance, provide investment advice or handle stock market investments, for example.

    Not everyone can call themselves a CFP® professional, however, explains Harold Evensky, a CERTIFIED FINANCIAL PLANNER™ professional at Evensky & Katz, a wealth management firm in Lubbock, TX. “CERTIFIED FINANCIAL PLANNER™ is a registered trademark indicating the individual has met a series of substantive criteria indicating their professional qualifications to provide unbiased, comprehensive financial planning advice. This is coupled with on-going educational, ethics and practice standards.”

    This article, the first in a five-part series on The Power of Financial Planning, highlights 10 key distinctions between a financial planner and a CERTIFIED FINANCIAL PLANNER™, and explains why it's important for consumers to be aware of the differences.

    1. CERTIFIED FINANCIAL PLANNER™ professionals are held to a fiduciary standard. That means they are obligated under the terms of their CFP® designation to always put the interests of their clients first, above their own interests and those of their firm or the company (or companies) whose products and services they represent.

    Professionals who aren’t subject to a fiduciary requirement instead may do business under a less stringent set of requirements called a suitability standard, which requires them to recommend products that are “suitable” to the client — that is, that the recommended security or product fit the client’s investing objectives, needs and circumstances.

    Most financial professionals who work under a suitability standard are regulated by the independent body FINRA. And there are grey areas in that standard. For example, a financial professional to whom only the suitability standard applies may recommend a suitable product that happens to carry a higher cost to the consumer and a higher sales commission for the financial professional, instead of a nearly identical but lower-cost, lower-commission product. The adviser opted for one suitable product because of the opportunity to earn a higher commission, even though another, more suitable (less costly) product for the client was available.

    When evaluating products that are identical except for their fees, a fiduciary is obligated to recommend the lowest-cost product to the client, even if it means a lower commission in the fiduciary’s pocket. A financial professional who’s working under a suitability standard may opt to recommend a higher-cost product, because their interests may lie first with the firm and/or the company whose products they’re recommending and selling.

    The distinction is important, and one that can make a material financial difference to the consumer, as the money an investor pays in fees could instead have gone toward the investment, where it would have the opportunity to grow over time. This can mean hundreds, even thousands, of dollars of appreciated investment value time.

    2. CERTIFIED FINANCIAL PLANNER™ professionals must adhere to a code of ethics that governs their behavior, priorities, etc. The CFP Board, the governing body that oversees all CERTIFIED FINANCIAL PLANNER™ programs, requires that CFP® professionals follow a Code of Ethics in all their professional activities, including interactions with clients. The code includes seven principles:

    • Principle 1 – Integrity: Honesty and candor must not be   subordinated to personal gain or advantage.
    • Principle 2 – Objectivity: Regardless of the service they’re providing or the capacity in which they are functioning, CFP® professionals must maintain objectivity and avoid subordination of their judgment.
    • Principle 3 – Competence:CFP® professionals must attain and maintain an adequate level of knowledge and skill, and apply that knowledge and skill in providing services to clients.
    • Principle 4 – Fairness: This requires CFP® professionalsto act with impartiality and intellectual honesty, and to disclose any material conflict of interest.
    • Principle 5 – Confidentiality: Ensure that client information is accessible only to those authorized to have access.
    • Principle 6 – Professionalism: Behaving with dignity and courtesy to clients, fellow professionals and others in business-related activities.
    • Principle 7 – Diligence: Provide services in a reasonably prompt and thorough manner.

     

    3. CFP® professionals are trained and have demonstrated competency in multiple areas of finance.To earn their designation, CFP® professionals must complete a comprehensive course of study offered by a college or university program that follows a personal financial planning curriculum approved by the CFP Board. That course of study encompasses more than 100 topics in stocks, bonds, taxes, insurance, retirement planning and estate planning. In addition, they must have earned a bachelor's degree from a regionally accredited college or university.

    Standing behind the CFP® designation is a governing body, the Certified Financial PlannerBoard of Standards Inc., that administers the national CFP® exam, sets continuing education requirements and enforces rules and requirements to ensure CFP® practitioners live up to the standards of the designation. The requirements for CFP® certificants are constantly being reviewed, evaluated and updated by the Certified Financial PlannerBoard of Standards, which is expected to issue a new code of standards in the Spring of 2018.

    4. CFP® professionals emphasize plan over product. Ever felt like you were being sold a product by someone who never really made an effort to determine whether that product was the right fit for you? CFP® professionals are trained to look thoroughly at a client’s circumstances, goals, needs and priorities, then to build a plan around those. Any product recommendations they make to clients must fit in the overall context of that financial plan. That plan then is regularly monitored, revisited and fine-tuned as necessary. 

    On the other hand, a financial professional who lacks the CFP® marks “might get paid more for selling certain products, regardless of how well these fit inside an overall plan,” notes Geoffrey H. Owen, a CFP® practitioner with GreerWalker in Charlotte, NC. “Unfortunately, for many it is a guise, as they continue to be product salesmen or investment brokers without any real skillset or desire to engage in bona fide planning for their clients.”

    5. CFP® professionals must disclose how they are paid. It’s not always clear how a financial professional makes money, because they aren’t always up-front about the fees, commissions and other costs they charge customers. The priority for CERTIFIED FINANCIAL PLANNER™ practitioners is to be completely transparent and forthcoming about how they are compensated. They are required to make certain oral and/or written disclosures at certain times during their interactions with clients and prospects. 

    6. CFP® professionals see and address the entire picture, not just part of it. They’re trained to synthesize every aspect of a person’s financial life into a coherent, orchestrated plan, something that financial professionals with a narrower focus may not have the education or the expertise to do. A person who calls themselves a “financial planner” in reality may only be qualified to handle a segment of a person’s overall financial needs — insurance, for example, or investments.

    CERTIFIED FINANCIAL PLANNER™ professionals, on the other hand, are trained in:

    • Financial statement preparation and analysis, including cash flow analysis/planning and budgeting.
    • Insurance planning and risk management.
    • Employee benefits planning.
    • Investment planning.
    • Tax planning.
    • Retirement planning.
    • Estate planning/wealth transfer.

     

    7. CFP® professionals must follow a prescribed process when working with their clients. Other financial professionals may have no such requirement. The process CFP® practitioners are required to follow includes six steps:

    1. Establishing and defining the client-planner relationship.
    1. Gathering client data, including goals.
    2. Analyzing and evaluating the client’s current financial status and their assets.
    3. Developing and presenting recommendations and/or alternatives.
    4. Implementing the recommendations.
    5. Monitoring the recommendations and updating the plan as needed.

    8. Due diligence is part of the job description. CFP® professionals are trained to perform a complete data-gathering process with all their clients, allowing them to see the big picture before making any recommendations to the client. Other financial professionals may or may not follow as thorough a process. 

    9. Continuing education is required. CFP® practitioners must take continuing education courses, annually, on topics specifically related to financial planning. This helps them stay abreast of the latest tactics, technologies and practices to benefit their clients.

    10. CFP® professionals are inclined to work with other advisers as part of a team. When a client’s situation calls for specialized expertise, a CFP® practitioner is trained to seek out other professionals to meet the client’s needs. Under the CFP Code of Ethics, CFP® professionals are required to recognize “when consultation with other professionals is appropriate or referral to other professionals [is] necessary,” and to act accordingly.

    Ultimately, “people deserve to know more about the people they are trusting with their hard-earned money,” says Jon L. Ten Haagen, CFP®, of Ten Haagen Financial Group in Huntington, NY. With an understanding of what sets a CERTIFIED FINANCIAL PLANNER™ professional apart from the crowd, they’re more likely to get the quality financial guidance they deserve.

    To find a CFP® professional in your area, visit the Financial Planning Association’s searchable database at www.PlannerSearch.org.

    March 2018 — This column is provided by the Financial Planning Association® (FPA®) of Iowa, the principle professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  Please credit FPA of Iowa if you use this column in whole or in part.

    The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.